Posted: November 7th, 2023
Providing Financial Inclusion to Immigrants
Immigrants face numerous financial challenges after arriving in a new country, and at times, start-ups can offer unavailable services from traditional banking institutions. Migrante, the Chilean FinTech company, highlights the growing trend of financial companies using technology to enhance the integration of migrants and other marginalized communities into formal financial channels. Migrante can continue its use of technology to expand its value proposition, including motivating the increased use of existing products and broadening its products and services. While Migrante has to reinforce its credit product and expand its service offerings, it also has to pay close attention to the immigrants’ needs and experiences, using technology to create solutions to identified needs throughout their financial journey.
The Need to Offer More Products
FinTech companies serve low income and informal segments more efficiency than conventional banks. FinTech firms provide credit loans that do not require any physical, paper-based signatures, making credit more accessible to marginalized consumer segments. Conventional banks do not provide such services under the pretext of financial risk. According to the case study, over one million individuals have migrated to Chile since 2014, comprising nearly 30% of the host country’s refugee population. Most of the immigrants accept low-paying jobs to secure Chilean visas. The case study also highlights Venezuelans being closely linked to Chile’s emerging gig economy. However, the refugees are excluded from the conventional loan market even with low-paying jobs (Vallee and Larrain 5). The gap implies an expanding consumer base for Migrante and other FinTech firms in Chile. The existing loaning system has proven successful with a 1% delinquency rate, hence can be replicated in other financial services. Migrante’s business model can effectively enhance financial integration for the underserved consumer market.
FinTech firms create consumer value by lowering customer acquisition costs compared to traditional banks. The case study informs that while many Venezuelans could secure jobs as delivery and transport men during the pandemic, most did not have the financial capital to purchase and own the motorcycles used in the new business (Vallee and Larrain 6). The vulnerability outlines opportunities for existing FinTech companies. The success of the motorbike credit package shows the potential of small financial offerings for foreign labourers. The expanding immigrant consumer requires new income streams and financial products to build household resilience and start new ventures. The user is bound to be more open to trying the firm’s new products due to established trust. Migrante has the opportunity to maximize on its customer acquisition since its core market is willing to try out its new services. Migrante will not have to convince the underserved market of the feasibility of its new products due to the success of its credit offerings.
FinTech establishes brand loyalty differently from traditional banking by focusing on product and service innovation. Expanding beyond credit products is critical for the FinTech company to increase consumer reach, engagement and retention. As per the case study, the coronavirus pandemic led to an increase in the credit default rate, necessitating the adoption of new technological solutions, such as WhatsApp automated notifications. Remittances were bound to decline with the loss of jobs and economic slowdown (Vallee and Larrain 2). Given that migrants tend to be more vulnerable to unemployment, Migrante faces potential instability in its core business. A basic concept for mitigating risk associated with income is diversifying one’s income streams. As the case study indicates, economic turmoil enhances the acceptance of digital payments (Vallee and Larrain 2). Therefore, Migrante should plan for new opportunities emerging in payment platforms and digital lending by expanding its product and service portfolio.
Using Technology to Meet Consumers Where They Are
Migrante should use technology to design and offer financial products that other financial institutions do not offer to immigrants to retain and improve its competitiveness. According to the case study, focusing on the initial credit product results in a loss of customers due to the transition to mainstream financial institutions (Vallee and Larrain 7). As the immigrants access initial credit to start businesses, they eventually shift to conventional banks. Migrante can counter this risk by using technology to follow clients throughout their financial cycle. The Fintech organization already has an effective credit score model for collecting and sharing financial information. The innovation contributes to the organization’s ability to deliver improved customer experiences. For instance, the credit score model can help the firm specialize in a subset of financial products where the company already has a competitive advantage.
Technology creates the opportunity of developing into a neobank, helping immigrants counter the remittance problem. Migrante uses the credit score model to achieve its core purpose, which is accelerating the immigrants’ trajectory towards financial inclusion. However, the case study informs that even with low-default rates, Venezuelans are still faced with the high costs of sending money home (Vallee and Larrain 7). The gap indicates that part of the value proposition for Migrante’s clients is making money transfers easier and cheaper for clients. The traditional banking system in Chile does not offer immigrants any efficient services for sending money home. The existing international banks offering the service are highly expensive. Using technology to grow into a neobank allows the Fintech firm to work with mainstream platforms while developing its niche product. The approach removes access barriers and enables the company to specialize in remittances.
Working with mainstream financial organizations is strategic to Migrante’s expansion of products specific to immigrants’ needs. The company is faced with the challenge of retaining consumers as they move along their financial journey. However, as the clients move up, some mainstream providers may still be reluctant to serve them (Vallee and Larrain 7). The trend has led to many immigrants distrusting traditional banks. Migrante’s credit score model has enabled the start-up to develop healthy relationships with users, gaining their trust and distinct insight into their needs and preferences. As highlighted in the case study, the implementation of Application Program Interfaces (APIs) will allow the firm to find strategic financial partners, making it easier for immigrant labourers to transact within the local financial system (Vallee and Larrain 7). Partnerships will facilitate the integration of migrant workers into traditional banking, improving access to excluded services such as money transfers.
Why Migrante has to Offer Services Excluded from Mainstream Banking
Growing value for the consumer is fundamental to business success, meaning Migrante cannot focus on customer acquisition only with its initial credit offering. One strategy for improving consumer value is expanding the suite of products specific to the user. Migrante is aware that it needs to find ways to address the money transfer problem, but it does not operate as a financial institution (Vallee and Larrain 6). The FinTech firm lacks the appropriate corporate infrastructure or regulatory licensure to offer money transfer services. Therefore, the firm has to find a way to maximize the promise of open banking. By applying technology to become a neobank, the lender can get a more accurate and detailed picture of the immigrants’ financial situation, including the level of risk. Neobanks are Fintech companies that use apps and software, such as the API, to streamline mobile and online banking. The approach helps Migrante offer and specialize in specific financial products, such as business loans for immigrants.
Expanding service offerings excluded from mainstream banking will force traditional banks to be more competitive with new Fintech organizations. The case study outlines the company’s purpose is to hasten the immigrant’s journey toward financial inclusion. Migrante’s approach to customer experience forces banks to rethink their service strategies (Vallee and Larrain 7). New technology comes with changing consumer requirements, and the contemporary financial user requires services that facilitate financial management instead of transactions only. The consumer requirement outlines the need for open banking, which is a two-way exchange of banking information between banks and third party providers. Open banking drives innovation, incentivizing the adoption of new technology to enhance competition between financial providers. The eventual outcome of increased competition is lower service costs for consumers. Making traditional banks lower their service fees and interest rates helps Migrante achieve its core purpose of improving financial inclusion for immigrants.
Customer perception of an enterprise as innovative is the outcome of the various services it provides. Fintech firms operate more in the technological sphere than the financial, meaning innovation is an inherent feature for customer satisfaction. Migrante has to maintain its perception as innovative to retain old customers while attracting new ones (Vallee and Larrain 5). Introducing products and services specific to immigrants is one way to maintain the company’s perception as innovative. For instance, by innovating to become a neobank, Migrante can offer money transfer services without requiring the consumer to sign any physical paperwork. Immigrants will be able to send money all over Chile with little cost. Big banks are acknowledging the increasing demand for neobanking, and a failure to roll out similar services will render Migrante unable to compete.
Immigrants would not have believed the possibility of financial inclusion in host countries as feasible ten years ago. Traditional banks would be apprehensive about allowing migrants to open up accounts and access credit loans. However, Fintech is changing the rules of financial inclusion for asylum seekers. Migrante faces the unique opportunity of an expanding consumer market. To secure its competitive position, the company needs to reinforce its initial credit offering while introducing new products specific to immigrants. The company has to shift from targeting immigrants upon host country entry to walking with them throughout the financial journey. The business strategy requires investments in technological innovation, including implementing technologies that facilitate open and neobanking.
Vallee, Boris and Mauricio Larrain. Migrante: Using Tech to Provide Financial Inclusion to Immigrants. Harvard Business School, vol. 228, no. 101, 2021, pp. 1-17.
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